Chart of the Week
Last year's rate rise finally prompted what appears to be the beginning of a massive repositioning in investment portfolios. What does this mean for your portfolio?
Investors have been shifting their portfolio allocations for several reasons recently. One of the main reasons is the expectation and fear that interest rates will rise (and bond prices will fall).
As stock, bond and housing values rise, consumers tend to feel wealthier, leading them to spend more. That spending comes about not from rising incomes but because consumers are saving less.
Investors in funds that track the Morningstar Intermediate Bond Category lost almost 4% in the May-June interest rate spike.
Inflation may not be the most pressing and immediate threat, but it is a sure one. Consider that even relatively moderate inflation of 3% can result in the loss of more than half your purchasing power over 25 years.
75% of investors said they would be encouraged to save more if they understood how their retirement savings translates into future retirement income. The more clarity we can give people about their track toward retirement, the more they can take action.
A traditional "diversified" portfolio has long been built around 60% stocks and 40% bonds. Surprisingly, portfolios built in this way actually fared slightly worse during the recent credit crisis than an "undiversified" portfolio.
With many asset classes at their lowest yields, amid increasing volatility the income challenge for investors and retirees is enormous. However, the range of asset classes that can help generate attractive yields may be broader than most realize.
Although 2012 was a year in which major catastrophes were avoided, it remained a year of "risk-on/risk-off" trading as investors continuously reacted to developments in Europe early in the year and political trends in the US as the year drew to a close.
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